Australian unemployment expected to edge up, MoneyTech Finance 2020 becomes available to retail investors and IMF Bentham begins trading in the secondary market
Economic Wrap
Australian employment data is due out on Thursday with the unemployment rate expected to rise 0.1% to 5.9%. Employment numbers are expected to increase by about 17,000, after being relatively flat in February.
The Reserve Bank (RBA) Statement last week provided a new emphasis on the recent appreciation of our dollar, stating that it could “complicate the adjustment underway in the economy”.
The next CPI release is due on 27th April, prior to the next RBA meeting.
US Government Bonds had a quieter week, with 10 year Treasuries yielding 1.72%, compared to 1.76% a week ago. This week sees the release of US Retail Sales, Producer Prices Index (PPI) and the Beige Book release by the Fed. The Beige Book is a summary of commentary on current economic conditions and is regularly released prior to FOMC meetings.
Other news:
- Federal Reserve Chairwoman (Janet Yellen) offered an upbeat assessment of the US economy on Thursday at a panel discussion involving past and present Chairs of the Fed
- Oil rallied 6% enabling US equities to finish in positive territory
- US Q1 Earnings are beginning with low expectations forecast. The previous two quarters have seen negative earnings growth.
- Asian stocks fell amid concerns that Japanese stimulus efforts are not working. The Nikkei is down 17% YTD and the Yen is at its strongest against the USD in almost 18 months
Credit spreads were higher over the last week with the US Investment Grade Index (IG) finishing Friday at 82.3 basis points (bps), up 8bps over the week. The US High Yield Index (HY) was at 453.6bps, 15bps wider over the week.
Domestic market
Domestic interest rates are 4-5bps lower over the last week, with the AUD 3 and 10 year swap rates currently at 2.05% and 2.57% respectively. The Australian Itraxx is circa 140bps (or 1.40%, for this index of 25 Australian Investment Grade names). Our Itraxx widened 4-5bpsover the week.
Last week Arrium Limited (Arrium) announced that voluntary administrators have been appointed to oversee the affairs of the company. Arrium is an international mining and materials company listed on the ASX. Its three main segments are Mining, Mining Consumables and Steel. The majority of its debt appears to be bank debt along with a US Private Placement.
Flows
Coming off two McPherson’s lines and Dicker Data becoming available to retail investors recently, we have had increased flow across FIIG originated bonds. On Monday, the Moneytech Finance 2022 also became available to retail investors, so we expect the recent theme to continue. Moneytech is available in minimum parcel sizes of $10,000 with $1,000 increments and we remain well placed to offer bonds.
IMF Bentham also settled and has begun trading in the secondary market, available to wholesale investors only. If you missed out in primary, or are after bonds in smaller size, contact your dealer for pricing and availability.
Subordinated financials also attracted some buying last week, with clients seeking high quality liquid names. ME Bank was the main attraction, but we also traded some volume in ANZ, Westpac and AAI (Suncorp). Of the same ilk, we also saw buying in both SwissRe fixed and floating lines, with a first call date in 2017. While we generally see selling in these lines, as client rebalance their portfolios for longer exposures, they do offer attractive returns for those specifically looking for shorter term options.
As a reminder, the IG index is comprised of the Credit Default Swaps of 125 equally weighted names whereas the HY is comprised of 100 non-investment grade names. Changes in them are reflected in prices of securities of varying credit quality.